Unexplained Wealth Orders: how they work and who can be caught up in this new legal process

Mon, 05 Feb 2018

Barrister - Philip Rule

By Philip Rule, Barrister of the Bar of England & Wales, and Attorney of the Cayman Islands Bar

From 31 January 2018 newly in force in England & Wales are civil powers for the High Court to make an Unexplained Wealth Order (UWO). This is introduced by section 1 of the Criminal Finances Act 2017, inserting new provisions to the Proceeds of Crime Act 2002. It is the latest addition to a now considerable armoury given to prosecution and investigation authorities that enables orders to be made without criminal prosecution (thus avoiding the process of trial and the safeguards of such criminal process in seeking to establish whether there has been any criminality). No jury trial or verdict is necessary of course as the power is exercised in the civil courts process. The supposed purpose of such order however is to assist in the confiscation of the proceeds of crime. The orders may be made without prior notice being given to the person subject to the order.

The question remains as to whether legitimate international businessmen and businesswomen will find themselves facing such orders, and whether adequate due process will be observed in the operation of such orders so that the safeguards of the criminal law are not ignored whilst people may have their assets stripped from them. Nor, despite media reports suggestive of a discriminatory attitude to Russian nationals, is the power necessarily to be limited to oligarchs or the super-wealthy.

The organisations that can seek to use this new power

The “enforcement” authorities that will be able to use this power and apply to the court will include the Director of Public Prosecutions, the National Crime Agency, Her Majesty’s Revenue and Customs, the Financial Conduct Authority and the Director of the Serious Fraud Office.

Wide scope

The order requires a person to explain and account for the origins of their assets. They will be used where the assets owned by the person are suggested to be inconsistent with their income level. To apply the statutory test the order may be made where the conditions are satisfied that:

1)     There are reasonable grounds to believe that the person holds the asset;

2)     And reasonable grounds to believe that the value of that asset is greater than £50,000;

3)     There are reasonable grounds for suspecting the known source of the person’s lawfully obtained income would have been insufficient for the purposes of enabling him or her to obtain the property (NB. A number of assumptions and considerations are applied to this test – see below); and that

4)     The person is either:

(a)   a politically exposed person (meaning someone entrusted with prominent public functions by an international organisation or by a State other than the United Kingdom or another EEA State; and any family member; and any “known” close associate; and anyone “otherwise connected” with that person, as defined for the purposes of the Corporation Tax Acts);

Or there are reasonable grounds for suspecting that

(b)  the person is, or has been involved in serious crime (in the UK or elsewhere), or

(c)   a person connected with him or her is, or has been, so involved.

What is obvious from this of course is that the person does not need to belong to the super-rich, as the asset need only be worth £50,000 to enable the authorities to shift the burden of explanation of its origins onto the owner. It is also immaterial whether or not there are other persons who also hold the property, and does not matter whether the property was obtained by the person before or after this new law came into force.

It is equally obvious that such an order may be issued with far less evidence than would be necessary to even commence a criminal prosecution. Rather than the authorities having to consider whether there is a realistic prospect of conviction based upon evidence that could demonstrate to a jury that it may be sure of a criminal act (or, to put it another way, ‘beyond reasonable doubt’ finds a crime to have occurred), instead all that is required here are “reasonable grounds" for a suspicion.

The assumptions made and considerations had for the purposes of deciding whether there are reasonable grounds for suspecting the person’s lawful income would not have been sufficient to obtain the property, are:

(1) regard is had to any mortgage or other kind of security that it is reasonable to assume was or may have been available to the person to obtain the property;

(2) it is assumed that the person obtained the property for a price equivalent to its market value;

(3) income is “lawfully obtained” if it is obtained lawfully under the laws of the country from where the income arises;

(4) “known” sources of the respondent's income are the sources of income (whether arising from employment, assets or otherwise) that are reasonably ascertainable from available information at the time of the making of the application for the order;

(5) where the property is an interest in other property comprised in a settlement, the reference to the respondent obtaining the property is to be taken as if it were a reference to the respondent obtaining direct ownership of such share in the settled property as relates to, or is fairly represented by, that interest.

Most notable from this are: (i) the income is lawful if it was lawfully obtained according to the law of the country where it was generated; and (ii) “known sources” of the respondent's income are the sources of income (arising from employment, assets or otherwise) that are “reasonably ascertainable from available information at the time” of applying for the order. This second consideration would therefore seem to suggest that the less enquiry the authorities make before applying for an order into sources of wealth of the individual, the greater prospect that the burden shall be shifted by the making of the order. That might seem unfair and contrary to good investigative practice. It is suggested that an objective test as to what is “reasonable ascertainable” at the time should require authorities to take reasonable steps to investigate the person’s wealth sources before making an application.

Where all the conditions are satisfied the court has a power but not a duty to make the order sought.

Freezing of assets

Another new power allows for the making of an interim freezing order when the court makes an Unexplained Wealth Order. This may be made if the court considers it necessary to do so for the purposes of avoiding the risk of any recovery order that might subsequently be obtained being frustrated. Such a freezing order prohibits the person, and any other person with an interest in the property, from in any way dealing with it (subject to some exceptions).

If a freezing order is made there is provision for application to be made by the person for the variation or discharge of that order.

Where the asset is believed to be located outside of the UK (and the UWO has been made) and it appears that there is a risk of any recovery order that might subsequently be obtained being frustrated, a request for assistance may be made by the Secretary of State to the government of the other country to prohibit the person from dealing with the asset, and for assistance in connection with securing its detention, custody or preservation.

Failure to explain the wealth

The order requires a statement of information be provided, and may also require the production of documents. The consequences of a failure to comply with an Unexplained Wealth Order include:

(1)    the enforcement authority may commence enforcement or investigatory proceedings, and for the purposes of any civil confiscation proceedings taken in respect of the asset (under Part 5 of POCA 2002, for the civil recovery of the proceeds of unlawful conduct) it will be presumed that the asset is recoverable, unless the contrary is shown.

(2)    If in purported compliance with the order a person recklessly or knowingly makes a false or misleading statement, they commit an offence which may result in a sentence of up 2 years’ imprisonment or a fine, or both.

(3)    the High Court may make or may continue an Interim Freezing Order, if it considers it necessary to avoid the risk of the respondent disposing of the asset concerned before complying with the terms of the order.

Possible challenges to an UWO

The new powers are likely to face some challenge, and require some interpretation by the courts. Some issues to be considered may include:

(1)  Compataibility with human rights legislation: these order place the burden of proof in respect of the question as to legitimacy of the assets upon the asset owner rather than investigators. The low threshold of information (rather than evidence) upon which Unexplained Wealth Orders are sought raises a question as to the presumption of innocence. The balancing required for the protection of the right to privacy and private life, the protection of possessions and property rights (including of companies, corporate persons, as well as biological individuals) from unnecessary or disproportionate interference, and whether an order might amount to a retrospective “penalty” in its operation to assets held prior to this new law;

(2)  If applications are made without notice, in the person’s absence and without he or she being legally represented, in a similar way to present production orders or warrants, the orders may be challenged on ground of a material non-disclosure or that the criteria for such an order have not been properly met.

(3)  Potential abuse of process may arise if this process is to be used to thwart due process rights protecting individuals subject to criminal prosecution. Whilst the statement provided to comply with the UWO may not itself be used in a criminal prosecution, there may be concern as to the privilege against self-incrimination being undermined if there remains a prospect of criminal prosecution in relation to any information contained with the statement forming a basis of the criminal investigation.

Philip Rule is a barrister specialising in both criminal defence and in related civil work including a considerable High Court practice and considerable experience of confiscation proceedings in both civil and criminal jurisdictions.

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